Q16E_2 - Horngren'S Financial And Managerial Accounting

Question

Classifying and accounting for equity investments 

Boston Today Publishers completed the following investment transactions during 2018 and 2019:

2018 

Dec. 6 Purchased 2,500 shares of Loveable stock at a price of \(24.00 per share, intending to sell the investment next month. Boston did not have significant influence over Loveable. 

     23. Received a cash dividend of \)1.50 per share on the Loveable stock. 

     31. Adjusted the investment to its market value of \(11.00 per share.

2019 

Jan. 27 Sold the Loveable stock for \)18.20 per share.

Requirements 

On December 31, 2018, how would the Loveable stock be classified and at what value would it be reported on the balance sheet?

Step-by-Step Solution

Answer

The investment will be recorded as current assets equal to $27,500.

Definition of Current Assets

The resources being held for converting them into cash within the operating period are known as current assets. These assets include prepaid expenses, receivables and short-term investments.

Reporting Investment on the Balance Sheet

The investment made in Loveable stock will be reported on the asset side and classified as a current asset because the company wishes to sell the investment next month.

It will be reported at its fair value of $27,500.